Abc Costing

14 Pages 3609 Words

department or plant while an ABC system implements a substantially large number of pools. Also, indirect cost application bases, in regards to a traditional system, may be considered as cost drivers, while in an ABC system, cost application bases tend to be cost drivers. Continuing on, indirect cost application bases in traditional systems tend to be financial, such as direct labor or perhaps direct material costs, while on the other hand, ABC indirect cost application bases tend not to depend on variables that do not have a financial implication. Variables used when determining an indirect cost application base in this instance tend to be number of parts in a product or hours of test time. (Hicks, 1999)
Finally, the traditional cost system compared to the ABC system tends to incorporate predetermined rates used based on budget while ABC focuses on capacity (Foster, 1991). Overall, the similarities between the two systems are to be somewhat expected but the differences between the two systems prove to be quite significant. Consequently,...